This page has been archived and commenting is disabled.
LTCM General Counsel On Debt Denial: "There Is Little Time To Avoid Catastrophe And Almost No Exit", Suggests Gold Price Of $5,500
Recently we posted a terrific interview of Kathryn Welling with LTCM's former General Counsel, James Rickards. The lawyer turned economist, who is now a director of Omnis, posts the following stunner on the implications of the endless sovereign debt glut and the Keynsen abortion that every developed economy has undertaken. As the man who survived (and, well, created) the original market "systemic" event, Rickards should certainly be heard by all those who believe the government can sustain the latest, and by all measures, last iteration of the global reflation Ponzi. Not surprisingly, Rickards is the latest to jump on the fiat alternative bandwagon, seeing gold at $5,500 as a fair price for the precious metal.
Debt Denial, by James Rickards in The Daily Caller
The sovereign debt crisis has crossed a threshold. It’s no longer about economics. It’s about math and a complex system whose dynamics tell us there is little time to avoid catastrophe and almost no exit. Going forward, elections and policies will matter less as the debt plague takes hold and dictates hard outcomes.
It is the case that real debt cannot be repaid through any feasible combination of growth and taxes. We will soon arrive at the point where it cannot be rolled over. Debt includes contingent liabilities as well as bonds. In the U.S., this means social security, healthcare and housing obligations estimated at over $60 trillion. That does not include unfunded pension obligations of the states whose plans use fanciful 8% growth assumptions to limit contributions. Pension debt grows exponentially; a toxic brew of increased benefits, contribution shortfalls and anemic performance.
Even what we call money is debt. Paper money is a contract between citizen and government. As with any contract, it pays to read the fine print. Embossed on each U.S. bill is the phrase “Federal Reserve Note.” Give the Fed credit for full disclosure; these notes are liabilities. If the Fed’s mortgage assets were marked-to-market the Fed itself would be insolvent. In short, it’s all debt. Wealth is illusory if it involves a claim payable in dollars which are but a claim on an insolvent central bank backed only by its ability to print more debt. The situation is worse in the UK, Europe and Japan. The global financial system is a rope of sand.
If this system is illusory, how has it prospered over centuries? The answer is that for many years governments ran surpluses and at times had no debt at all. Growth was robust providing support to the tax base. Governments had the trust of bond markets to rollover maturing obligations. With some fits and starts, tangible wealth creation outpaced debt creation. And until recently paper money was backed by gold at fixed rates of exchange. Today all four legs of the table – surpluses, growth, trust and gold are gone or damaged.
There is no prospect for surpluses; nations hit the brink of disorder at the mere mention of 3% deficit-to-GDP ratios. Growth prospects are likewise dim given current policy. Obama grew spending on a feed-the-beast theory that forces taxes to rise to match spending. If Obama does not get his way, deficits will be ruinous. If he does get his way, taxes will stifle growth. You cannot tax your way to solvency in a world of low growth and compound interest.
As for market trust, go ask the Greeks. Each bond buyer has a critical threshold where he will not buy another bond. Picture bond buyers as theatre patrons. The image of someone yelling “fire” and patrons rushing out in a panic is familiar. More intriguing is the case in which just a few patrons rush out for no apparent reason. Do those remaining follow suit or stay seated? It depends on their individual thresholds. If high enough, everyone remains seated. But if some thresholds are low, those patrons leave too triggering other thresholds and so on until a cascade of exits empties the theatre.
In markets, the array of individual thresholds is immensely complex. The scale, interdependence and adaptability of market participants today are greater than ever. It would take very little to trigger a wholesale revulsion with sovereign debt.
What about gold? The view is that systems on a gold standard system cannot increase money supply as needed; of course, that’s the whole idea. Increasing money beyond the modest levels at which gold supply grows is the Keynesian remedy. But empirical evidence shows the so-called Keynesian multiplier is fractional and therefore a wealth destroyer. Another attack on gold is that there’s not enough of it to support money supply; but of course there’s always enough gold; it’s just a question of price.
The U.S. has never truly gone off the gold standard. The U.S. gold hoard today has a dollar value equal to about 20% of U.S. M1 money supply – a respectable ratio even in the heyday of the fractional gold standard. A gold price of $5,500 per ounce would comfortably support a broader U.S. money supply on a one-to-one ratio and maintain confidence in the dollar and U.S. sovereign debt.
Is there an exit? One path involves hyperinflation to destroy the real value of debt followed by redenomination and a new paper money game. The other path involves a gold backed currency at a non-deflationary price. This is a choice between denial and frank talk. Sound money leads to sound growth and the creation of real, not illusory, wealth.
h/t Jing
»
- 19611 reads
- Printer-friendly version
- Send to friend
- advertisements -
Then don't. I will. :)
By the way, you're respectful, so I don't mean to be disrespectful if it comes off that way.
You really must be Nadler --- you have the same arrogance, the same monotonous record of attacking and belittling gold, and the same prediliction in pushing absurd strawman arguments.
I don't know what your obsession is with some supposed particular price prediction for gold in April, but I know nothing of it nor do I care, nor does it have anything whatsoever to do with the fact that we are facing an imminent and certainly inevitable collapse of the current fiat currency regime. Your juvenile mocking of all those who would seek shelter from this monetary debacle speaks volumes about your character, or more specifically the lack thereof.
"Because gold is honest money, it is disliked by dishonest men."
There was a poll here the last time gold was going up, and people bet whether it would be "over or under" 2000. Most people took the over.
Most of them were wrong.
You must be new. That's okay though.
I don't know who this "Nadler" is, but I think that you're fixated on nads a bit much anyway.
Considering the source of that comment is a poster who proudly proclaims his self-abusing tendencies, I find it rather ironic to say the least.
And some forum poll that MAY have occurred as you say has no relevance whatsoever to the arguments favoring gold in this time of unprecedented financial and monetary chaos in any event. You do excel at making strawman arguments, however.
My point is... these people have been bearish since April of 2009, and constantly saying how gold would skyrocket.
They've been wrong the ENTIRE TIME.
But now all the sudden they're predicting something asinine like 5500 dollar an ounce gold, and I should believe them.
MB,
Check out what Gld is doing against other currencies,not just the dollar.
IMHO, You will see it at or on $2k by yrs end.
100% of the US Silver output was used to make Silver Eagles.
The sad part is, WHEN the MUSIC stops, your going to sitting in the corner with your pud in hand.....................saying woe is me.
Sounds like your a tad young, and full of piss and vinegar.
Good for you....your going to need both soon..........very soon.
Whe folks stop taking paper Gld, and demanding physical, the party is ON.(they already are)..........but, we're in the beginning stages of that.
The reasons for it not being where forecasted,has been well documented here the past few days.
The Mkt's are small for both Gld & even more so Slvr...........soon the Physical demand will overwhelm supply, and the TBTF's will not be able to control the prices any longer.....the barn door is open, and the horses are at the gate............
But occasionally he and others side track the thread. Ulterior motives? Seems way to adamant for an ignorant , innocent person. Theres a bit of passion and job like nature to MasterBates.
Mayhap it is the moron , Nadler.
EVEN IF I had an ulterior motive, what exactly would that be?
I mean really... I get you to not buy gold, and then what? How would that benefit me in any way whatsoever? How would it benefit me to get you to not buy gold?
Do you people even think before you claim anything?
I'm not Nadler, whoever that is. I'm just a kid that made enough money trading to sit here and laugh at you all day instead of working.
It's funny though. Everytime you launch an attack against pm's on here they go up 60 bucks or are in route to going up 60 bucks.
Maybe self flagellation isn't enough for you, you're a masochist and you enjoy the abuse. A reasonable person would have stopped arguing with people he didn't agree with a long time ago. Call bullshit on it if you think it's unreasonable, explain why, and be done. Don't be drawn in and don't draw others in.
mako
You are the man
wise comments again
right from that start of this crash
I knew what was i n store
Billions are going to die
I knew it
the entire system has reached its mathematical limit
too many people c hasing too many resources run of a system that requires infinite growth on a finite planet
only way out: press the RESET button
which is ?
WAR
reduce the population, destroy infrastructure and start again at least thats what the elite will choose to do
go on, press me.
Destroy the debt record and we all go back to zero.
Precious metals will always have value. There is nothing else that has stood the test of written history. Unless you used your FRNs and credit to buy gold, silver, copper-jacketed lead, and aluminum cans with food inside.
If you don't at least have access to enough daily calories to make it through whatever upcoming turbulence there arises you will be zero-zero.
I certainly will owe nothing, but I won't be at zero.
Imagine what would happen then! I mean, gold could easily go to 170000 an ounce within days!
lmao...
Why has a useless and egregious troll like you not yet been banned here?
Are you EVER going to post anything of any substance, and without the smug and juvenile arrogance, Nadler?
I didn't know that opposing or "correct" views should be banned from a site.
I guess that it'd do better for you if I was, so that you can live in your fantasy without any reality check whatsoever though.
What a complete troll and asswipe.
Noting is more pathetic than a (presumed) adult who gets his jollies by antagonizing others and instigating meaningless arguments while safely hidden in anonymity.
+ ∞
Would help the ZH overload problem as well... please just give it a rest MB... how many times do you have to make the same point... WE HEAR YOU, OK!
You need another hobby... maybe a large bottle of glue and a small paper bag.
Hate to say it, but it's time to go MB... Marla, where are you?
SRV - ES339, i 'll drink to that!
Yeah, I'm thinking about leaving this place anyway. It used to be cool, and there used to be smart people here.
More and more, it's just a bunch of retarded people that can barely spell their name spouting off idiotic conspiracy theories about how gold is manipulated and going to be 6000 an ounce.
I remember when I came here, it was much better than that. There were people that actually knew about trading, kind of.
Now it's just like... "I have a bomb shelter in my basement, I load up on gold, because the United States is like Zimbabwe."
You people are fucking stupid. Maybe I should leave this place. I have been coming here WAY less than I used to for the very reasons I spoke about earlier.
Still, I don't think that I should be forced to leave when I've been coming here longer than probably most of you. I have only been posting since November or something, but I've been here WAY longer than that.
But yeah, you're right, it is time to go. This place has devolved into a bunch of people that don't know a motherfucking thing about economics or trading from a place where it was once filled with brilliant people.
Tyler and Marla are still smart, and there are some good, smart posters here. But then there's people just like you...
"Gold to 95000! Bitchez!"
I think I just may leave this place, and find people who actually have been right trading ONCE in their lives.
That's it... it's settled. I'm going to delete my account when I figure out how.
honey, take up a sport.
Dude - just read the posts & threads that INTEREST YOU. You have no interest in Au, that's fine, but it is YOU that are obsessed with it beyond any goldbug. Drawn to the topic like a moth to flame - only to get flamed. Go figure. Seriously, Robo puts up threads, Leo puts up threads, there is no shortage of places here for you to discuss your beloved strategies. If I'm wrong and you're right, then I will get a (fairly) quiet retirement and a few years of peace with my bride before we cast off this earthly bound. I actually root for you to be right, even though it means the Great Ponzi continues, but warn people to prepare because it is morally wrong for me not to, and the Great Unwind is not something to enter into blindfolded.
Well said!
He definitely has an "obsession". My serious guess is that he got burned bad by buying something "at the top", and is trying to "warn others" of what he sees as a "top" most likely to get some joy and vindication out of being able to say, "I told you so"... Others must have done that to him. There is some warped psychological component to his postings.
i read a lot of his posts about 5 months ago. he lives in denver, is an accountant and lost his job, had a job interview with a hospital. but a few weeks later was posting madly again on ZH, so 2 + 2 didn't get the job, lots of time on his hands to keyboard and masterbate.
probably in the first phrase of mourning, ANGER†
Good advice. Don't delete the account MB .OK to get in our (goldbugs) face now and then...But as Peter Lynch used to say, "assets that are high are probably high for a reason and will go even higher" He did state this before the dot com bubble though!
Im buying gold and silver out of FEAR, not greed. I dont care how many frns you have, you wont get my money for it. But, if you have some chickens or tomatoes, or maybe a farm....
People make their best decisions when they're afraid. Like when we went to war in Iraq, for example.
I and surely others stand in awe of your words of wisdom. Thank you once again wise one
You should. When you lose your money like an idiot, I'll be long gone.
This is my last post.
Nathan on Economic edge is a moron as well
I mentioned we have too many people on the planet and he said, no no thats not it the earth can support way more
all we need to do is get a new money system.
Whilst talking about parabolic functions collapsing
ever seen a chart of the population growth?
Its parabolic but that one doesn't count it seems
the truth hurts to so many people
and it will hurt, but reality is reality
I guess Nathan believes that a new money system will magically produce more potable water.
We could buy a hell of a lot of water purifiers----if we didn't have to pay interest on make-believe money....that's used for WAR.......that just blows shit up....ever heard of the broken window fallacy? WAR is kinda' like that...on a MUCH bigger scale.....think about the skimming etc. that goes on, Bro. How do you know what the Earth could provide for if we eliminated the cabal? Christ it's OUR Money, squirreled away by a bunch of central bankers and their sycophantic phucks!
syc·o·phant
(sk-fnt, sk-)
n.A servile self-seeker who attempts to win favor by flattering influential people. OR A person who uses flattery to win favour from individuals wielding influence; toady ........BTW....... Nathan is a GOOD MAN...... you're not a good guesser.
Population growth is only parabolic in regions where children are an economic asset. ie: More hands to till the fields.
The corollary of this is that in regions where the division of labour is much more advanced and entrenched (ie: industrialized capitalist countries) children are treated much less like assets, they simply have less value as factors of production because they don't need to. Standard of living goes up, fertility rate goes down, that's how it works with the advance of capitalism. We in the industrialized nations are reproducing less and less, and many of us in places like Canada aren't even reproducing ourselves.
Of course all of that is moot without sound money...
What! Is this guy a commie or something?
Leverage on, MacGeithner!
he is a good man??
he wants freedom but no freedom of speech and he says all
parabolic functions collapse but fails to see how it applies to population growth, pleeaaase
give me a break
He is an egoist at best
At this point, it should be obvious to the bankers (and to financial asset owners) that they're not going to get paid back.
Too many bankers are under the delusion that they're not criminals. Fiat money is by its very nature a scam.
The next 6 months will be unkind to all kinds of delusion.
I'm going to go out on a limb here to make friends with all of the irrational, wacko, goldbugs.
I'm going to say... Why stop at 5500 an ounce? We all know that gold is worth HUNDREDS OF THOUSANDS AN OUNCE!
Why, it's shiny, it's yellow, you can hold it in your hand, and I said so!
GOLD BITCHEZ!
Welcome to the club MB, glad you finally came around. I'd recommend the Philharmonics or perhaps some Maples - both shiny, new, beautiful 24k coins. Get rid those FRNs while you still can!
You already accomplished that with your Avatar...Long limb it is..?
He meant to say he can hold it in his other hand...
MB viagra to you . I hope your arms get tired.
For once you made an accurate statement, though one based on ignorance. FRNs can be printed infinitely, therefore the price of gold in FRNs is theoretically infinite. Certainly an ounce is worth more than 5500 zim dollars.
Are you drunk already?
Master Bites, it is SO illuminating to see how any mention of gold in a site such as this one brings out the rabid gold-hating, pro-bankster, pro-fiat, pro-establishment, anti-truth troll brigade. It might be more entertaining if you brought anything substantial whatsoever to the conversation here, but I am still waiting to read any contribution from you along such lines.
Please tell us, though, because I am extremely curious: From where does this irrational and wildly illogical hatred of gold that you manifest so clearly derive? I have my theory:
"Because gold is honest money, it is disliked by dishonest men."
I don't "dislike" gold. I love it. It's shiny, it's yellow, and I can hold it in my hand. That's why it's going to 17 million an ounce by next Thursday.
1. There is no difference between the US and Zimbabwe.
2. When the Earth collapses, there will be nothing left but gold, guns, seeds, and canned hams.
3. Our currency will collapse in three days.
4. GOLD, Bitchez!
But no, seriously, I don't dislike gold. I don't have any feelings about gold itself whatsoever. What I do disagree with are the predictions that it'll get to 2000, much less 5500.
Gold has already appreciated much more than inflation, or the devaluation of the dollar.
It is technically bound to basically under 1300 an ounce. (1304 is the top target, if it gets there, even...)
The price of the hyperinflation you speak of is already priced into it and more.
Yada, yada, yada.
And just when I thought you couldn't possibly spout anything more idiotic than the bilge you have spewed in this forum already ......
About 40% of my portfolio is in gold and silver (CEF and GTU). I've been buying gold since it was $300/oz, and I even make sure to keep a healthy stash of gold and silver coins around. I think $5000/oz is likely, but I have a longer timeframe: 5-10 years. I really do think that a collapse in fiat currencies is going to surprise many people with its ferocity.
That being said, I think your posts are hilarious and I hope you keep them up. I watched the dot.com bubbles and housing bubbles from the sidelines, first with amusement then later horror. It's hard not see some similarities between the dot.com bubble and the enthusiasm people here have towards gold. Well done for reminding us of that fact and doing it with a sense of humor.
GOLD, Bitchez!
Interesting observations, Rimpinths, but I think you are very wrong in comparing gold to the dot-com and housing bubbles, at least today. I don't think it is truly correct to state that people here have an "enthusiasm" for gold, so much as it is that they have a FEAR of out-of-control government and reckless and unsustainable fiscal and monetary insanity. Gold in and of itself does not excercise any great hold on my psyche, it is my fear of what is happening in the world today, especially in regards to our financial and monetary systems, that is DRIVING me and others into gold (and silver, and platinum).
The real mania today is NOT in gold, far from it --- the mania is in the growth of governmental power over the economy and our lives! Gold is just a hoped-for lifeboat to escape the sinking ship of fiat lunacy and statist insanity.
You know, I've made the decision to leave this place, at least as far as posting goes.
The news is good for the most part, but I just don't fit in with the posters here anymore.
This place has become much larger, but a lot "thinner" too, if you know what I'm saying.
This is my last post, and after this I'm changing my password to something I can't possibly remember, so that I don't post here again.
To the people that care, good luck to you all.
To the people that think gold is going to 5500 an ounce, one last LOL at you all. We can all wish, can't we?
Promises, promises .....
You will be back, and very soon, and we all know it.
Like a moth irresistibly drawn to the golden flame, you just can't seem to help yourself from defending the fiat regime and attacking gold at EVERY mention of it in this forum. One can only presume why that may be.
If you do honor your word, then good riddance to bad (and particularly arrogant and clueless) rubbish.
Master bates can you please answer this question....
Do you own lots of US debt and dollars ?
Questions for Mr. Bates...
1. When gold was $300, were you expecting gold to go over $1,000?
2. If and when gold crosses $1,304, will you be sticking around here?
Much thanks.
MB , i have a 10 oz bar in my hand. Its shiny,its hard and gives me a good feeling , like i am holding something of value.After a hard days work, receiving a silver bar in trade is orgasmic in a liberating way i find hard to explain.
Freedom from constraints, that piece of silver represents my labor in a smaller ,but substantial form. FRNs are like a check, a transfer vehicle and have no value in themselves.
Each time i buy silver i am amazed the man gives me actual silver for green bits of the kings paper.
haha. MB if you dont know who Nadler is, you dont know jackshit about gold and silver.
Check out Ted Butler, GATA etc you attn. craving fiat whore
Thank you much lol wonderfull response. lol
"Gold has already appreciated much more than inflation, or the devaluation of the dollar."
Not even close. Gold would have to reach over 6000 to back central bank base money.
"It is technically bound to basically under 1300 an ounce. (1304 is the top target, if it gets there, even...)"
Gold is being manipulated. Technicals are utterly meaningless.
"The price of the hyperinflation you speak of is already priced into it and more."
Are you really this dumb? Or an agent of misinformation? Is "IF" your other sockpuppet?
"Yada, yada, yada."
The only intelligent thing you've said.
I know I'll regret this... but lemme ask you a question: if not gold, then exactly what should paper currency be based on? Promises?
Try this...
Gold, Oil and Money in the Free Market
posted on youtube today. just an update on what we all know
http://www.youtube.com/watch?v=DNSakO8Z11o
Thanks, utube is a hell of an asset.
The solution to our economic woes is woefully obvious. We must end the unnecessary monopoly of the Federal Reserve as bloodsucking interest collector on US taxpayer debt issuance.
If Woodrow Wilson hadn't been suckered into this deal with the devil, our national debt would be a pittance of what it is now... After ~100 years of the Fed operating unchecked (& unaudited), the US national debt is at ~$14 Trillion. And growing ~$2.1 Million per minute.
http://www.usdebtclock.org/
What responsibilities are the private banking cartel charged with in return for this sweetheart deal?
1)Conducting the nation's monetary policy by influencing monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates. FAIL
2)Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system, and protect the credit rights of consumers. EPIC FAIL
3)Maintaining stability of the financial system and containing systemic risk that may arise in financial markets. EPIC FAIL
4)Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system. FAIL (a private bank should not have the power to obligate US taxpayers to finance the deficit spending of foreign governments)
We must end the Fed ASAP. Heads on pikes. Then the US Treasury issues Treasury Notes (at zero interest to replace FRNs. One form of fiat issued at zero interest replaces all FRNs in circulation eventually. And depending on how radical you want to take it, money that only exists as interest bearing debt could be replaced IMMEDIATELY. The US Treasury has issued the currency before. Why can't it do so again?
This is the basic premise of Bill Still's theory of financial reform. It couldn't be any worse that what we've got today as it provides a way to deal with the compounding interest on an out of control national debt problem.
http://www.secretofoz.com/
If you spent 1 dollar per second, it would take more than 32,000 years, to spend a trillion dollars
+100
Prepare for Minsky's final moment...
Actually, better than that headline $5500 number, I like the last line: "Sound money leads to sound growth and the creation of real, not illusory, wealth."
DOW / SP500 daily chart gives bullish signals as of Friday 9 April. Weekly chart still trends up but continues to warn of an overextended bear market rally.
http://www.zerohedge.com/forum/latest-market-outlook-0
http://i39.tinypic.com/34y4k6t.png
Anyone who says that hyperinflation is not a possible outcome has not been paying attention to recent events. All rules regarding banking, corporate law, accounting principles, role of government, conflict of interest and even human decency have been breached, rent asunder and cornholed by our ever growing government. Anyone with even a rudimentary understanding of economics can see that the official statistics given by BLS, the FED and our government are fictitious at best and damn lies to boot.
wouldn't going back to gold standard result in significant deflation as global productive capacity can increase much faster than gold production? (given increases in population and education these days, where as in the old days global productivity gain and gold production are more in line with each other)
wasn't this the main reason why gold standard was ditched? to keep the value/purchasing power of the currency/medium of exchange relatively constant across time and space? (one unit of work now will get me one unit of work later) thus the money supply should ideally be proportional to total productivity?
it seems a major reason that's causing our current problem is the skewed valuation system of different types of "work" in the society, if this is not corrected, same imbalance would result no matter what medium of exchange we use ...
The real problem is easy credit whether it is the government, a company, or a person it leads to overextension. I don't think credit is bad, but easy credit is destructive.
it leads to misallocation of assets. = moral hazard
no doubt "easy money" is a major problem, and that's why I brought up the skewed valuation system in the society
people's pursuit of easy money causes problems, but this won't be solved by a gold based economic system. in fact it seems many people advocate gold do so in pursuit/hope of easy money ... and I have some concerns regarding the results of going down that road
The WHOLE system is destructive Rick because it was designed with a fatal flaw = it requires exponential growth.
Ask yourself why bankers started lending to people with no chance of paying it back.
Easy credit WAS NEEDED to keep the ponzi going. It was the final throw of the dice.
And now credit is SHRINKING.
I agree 100%, but if there was no easy credit we wouldn't have most of the problems we have now. That they purposely devised this to perpetuate exponential growth is definitely right IMO too.
Why not Moon rocks or better yet Mars rocks. They have about as much value as gold and are much harder to mine. This site is being taken over by worthless pukes.
Go learn some political and monetary history with an open mind, and perhaps then you won't be so flippant about honest money vs. fiat Ponzi schemes.
The only real "worthless pukes" are those who STILL defend the brazenly corrupt and klepocratic financial and political establishments and their doomed fiat fiasco that continues to siphon the remaining wealth of the American people into their already bulging pockets. If you don't feel any outrage by now, you just haven't been paying attention!
In an ideal world armies of robots would work for free 24/7 building each of us a fine home, it's furnishings, a fine car, all the electronics we wanted, etc. No human would need to work, and we could sit at home or fly to Fiji and robots would cater to our every need, for free. Call it infinite productivity. Maybe a few of us pitch in to manufacture and maintain the robots, but the robots can do everything else.
We humans don't work, if we don't want to, we just eat, sleep, reproduce, and indulge our desires. Like inheriting lots of money, lol.
However, we're not quite in the robot world yet, so some people drag their butts out of bed to grow the food, while others make the equipment to grow the food, etc. In spite of technology and automation, it take humans time and energy and effort to produce things that we collectively need (food, clothing, shelter) and want (stuff, vacations, garbage collection, etc).
So how do we humans create a system of exchange, so that I am paid for my time and energy and productivity, and then I can pay you for yours. I happen to be a doctor, and you may find it of value for me to provide you with health care to preserve or improve your life, and for my time and effort you can give me something so I can eat, or buy a car, or send my son to college.
What should we exchange among ourselves? Chickens? Bags of rice? A nice watch? Plane tickets? Really, we could exchange anything we agree upon. Similarly, I could walk into a Walmart, pick up some food, some kitty litter, and an iPod, and check out by giving the cashier a couple of barrels of oil, a bale of cotton, and some DVDs I no longer use. Since she's a friend of mine, she's good with that.
However, wink wink, this barter system works ok between individuals, but you can't do it at Walmart, or Best Buy, or with United Airlines, or with the IRS. Sadly, we need some common medium of exchange, something that most people and companies and governments will accept as payment, instead of bartering stuff and services like one might have done in the old days.
Ok, I want to be in charge of making this money, so I can keep some for myself. Oh, I see, if we each made our own money, no one would accept it because its really just a piece of paper that I "say" is worth something. It's not really worth anything. Who gets to make the money then? OK, lets agree to let the Federal Government print up some money, make it hard to counterfeit otherwise everyone would just make their own money, and we'll exchange this money, made by the Federal Government, with each other for goods and services. And, we'll trade our Governments money for other Governments money so we can exchange stuff between countries. That's a good idea.
So if I want to fly off to Paris, I can convert my money into their money, and pay for a nice hotel room, and some nice restaurants, etc. That seems cool. Oh, if your country has some oil, which my country really likes, because we drive lots of cars, could we have some of that oil in exchange for some of our money? Yes? That's cool, thanks. And we have lots of wheat and cotton that you can buy from us with that money we just gave you. It's win win.
Uh oh, my country has a tiny little problem. We would really like to buy a whole lotta that oil from you, and, we'd like to buy a whole lotta stuff from this other country that makes stuff really cheaply. In fact, we want to buy lots more stuff from many countries than they buy from us. Because, truth be told, we're not lazy, per se, some of us work hard, but we just would really like a lot of stuff, a lot more stuff than we actually make.
Would you mind if we just printed up some extra money so we could buy your stuff anyway, even if we don't have enough stuff to sell back to you? I'm glad you don't mind, at least for now. But wait, what's that? Our money is now worth less than before because we had to print more money to buy our extra stuff? Ok, fair enough. We'll try hard not to buy so much stuff and print so much money to pay for it.
What's that? You have the same problem? You're buying more stuff from other countries than your selling? We can totally relate to that. Tell you what, we'll both print extra money to pay for it, and, between us, we'll just call it a wash, and our money and your money will still be about the same exchange rate. Sound good? Cool.
Those suckers in the countries that make the stuff that we want, they can keep our money and your money, its just paper. We have their stuff. And we didn't even have to work hard to get it. Let me elaborate a bit on how this money printing game works. If we just printed up extra money that would look bad and you would lose confidence in our money because after all its just colorful paper with bad pictures of dead caucasian men on it. We will pretend not to be creating money out of thin air, but instead, we'll keep records of all the money we print, and, when we need to print some money, we'll issue a bond, and that bond will pay interest, and we'll promise to pay that bond back sometime.
Now, we have a favor to ask. We promise not to print money and not tell you about it, and we'll issue a bond everytime we need to print some more money, but we need you or some other country to buy our bonds, to make things look good. Would you do that for us? Awesome, thanks.
Um, we have another problem. We really appreciate you buying our bonds, so we can print more money, so we can pay you interest on our bonds, and buy your stuff, or someone else's stuff, but, we're really short of money here at home. You see, we promised to give a lot of people a lot of money a while ago, and now they want money too. You have no idea how many people we promised money to! Jeesh, it's like everybody in the whole freakin' country.
Oh ya, it's terrible. We have teachers who want good salaries, plus benefits, plus pensions so they can make money when they don't work, we have union guys who were promised all sorts of money and benefits even after they stopped working, I could go on and on. And, our economy sucks, so there are, I kid you not, literally millions of people who are willing to work, but can't, who we need to provide some money to just so they can get by: unemployment insurance, food stamps, health care, etc.
So, I'm not going to sugar coat this, we need to print a LOT of money not only to buy your stuff, or the other country's stuff, but to give to our own people, who are out of work, or expect money and services in their retirement years, truth be told, don't like to work a whole lot. But, we feel guilty about not feeding people or providing them with good health care, for free. We even feel guilty if everyone doesn't drive a nice car or have a nice house. I know, I know, we're enabling them, they need some tough love, but we just don't have the heart.
In short, we need to print up a whole LOT of new money to pay interest on our bonds, to pay for stuff from other countries like yours, and to pay to our own people so they can buy food and get health care and the like. Would you mind terribly if we just made a whole LOT of money to pay for all this stuff? What's that? You do mind? What's that? You think we're not responsible with our money? We're printing too much? You're losing confidence?
We don't blame you, honestly we don't. We just don't know what to do. What's that? Spend less? Promise less? Work and produce more? It's a little late for that don't you think? Our whole culture is based on consumption, not work. Besides, we're somewhat embarrassed to admit this, but we've already amassed so much debt, really, there's no way we could ever pay it back. We could take just about everything from everyone in the country, and we'd still be in hock.
You're gonna have to let us just keep printing money. We'll try to be good, or at least better, but unless you quit taking our money we're just going to keep printing it and buying oil, and cars, and cheap toys, and lots of stuff. We LOVE stuff. And really the oil only costs about $2 per barrel to pump out of the ground, so what's the dif?
And frankly, just about every country is printing up money like mad just to give money away to old people and sick people and take care of people who frankly, don't want to work. If you think about, the people getting screwed in all this are the people who make the stuff we buy, because all they have is pieces of paper with bad art and we have the stuff. But as long as you take our paper and we take your paper, there's really no telling how long we can keep this little game going. The game depends on confidence, it's kind of a psychological game.
If you guys don't want our money anymore, or decide its worth a whole lot less relative to your money, we're in big trouble, because we'll have to print a whole LOT more money to pay for the same stuff, and then our people will run out of money faster, so we'll have to give them more money to pay for stuff, its a vicious circle of inflation and no one wins. Because, really, we have you over a barrel. If you decide that our money is worth less, then the bonds we sold you, yep, you guessed it, the bonds are worth a lot less. You're screwed.
So, lets pretend that our money is worth about what's its always been worth compared to your money, and we'll both print lots of money to buy stuff and give to our people. Even if we keep this little game going between us, another problem we're going to have is that we're going to run out of stuff. Seriously. I mean, someone has to make the stuff. And there's only so much stuff out there. So even if we can keep this little scheme going where our money is worth about the same as your money, if we all keep printing money, with the best of intentions so everyone can have lots of money, then, we're going to run out of stuff.
There's only so much wheat, or corn, or silver, or cotton, or doctors, or medicines to go around. You can print money but you can't print stuff. And you can't print services. Hmmm, this is a problem. We have a couple of flaws in this little game of paper money, even if we both go along with it. With more and more people producing less and less, with more and more money, the price of a lot of stuff goes up. And, if some upstart country doesn't accept our money, then we can't buy their stuff.
Really, if you think about, its just a dumb system. It's convenient and all, and if we were able to control ourselves, and you were able to control yourself, and not print so much money, and have more of our people work and produce things, we'd be ok. But you really can't just print up money and give it away regardless of productivity, because then there's no incentive to work. And if people don't work, no one is making stuff and providing services.
We had better ration, to some degree, money. But once we start rationing money people get really ticked off. People start complaining that they don't get enough money for their job relative to someone else, that it's not equal. The whole management versus labor thing. Intellectual capital versus non-skilled capital. People get so ticked about this. Really you need both. And people who don't work never stop demanding money. And they vote!
We'll just have to wing it at this point. But we'd better hoard some stuff just in case. Tomorrow, who can tell if there will be so much money its not worth anything or, the system breaks down, people can't get their money, and money becomes more valuable. Could go either way. Or, one could happen after the other. Remember 2008-2009? For a while the system seemed to break down, and money was actually MORE valuable. Just for a while. Since March of 2009 money has steadily lost value realtive to stuff, or shares in companies. And, truth be told, the value of our money has gone down relative to the value of money from countries that sell the stuff we want, like Brazil, or Canada, or China (I know, it's pegged for now).
We better hoard some stuff and some money. Probably will need both.
can i make an appointment with you, doc?
do you take wine?
do you believe in Dr. Jack Kevorkian?
genius. would love to read an equally well-written response to your letter from across the pond (no, not that pond, the other one, the one to the west that heads east)
Eh, well. I'm burning oxygen to point this out, but bravo. Freaking bravo. I could not have put it better. This is Mother Goose-level economics. Successful-living-by-example: just color by dots.
Who the freak can't understand this!
It's over. Party's over, folks!
In my best Doctor Evil voice.....BWHAA..HAA..HA..HA
Did you hear the news? Canada's only bullion vault is about empty.
Daz right.....you didn't hear it in the news.....and you shant.
Pay no attention to the used car ETF slickster salesman whispering sweet nothings in your ear.
i own gold and silver but at this stage a much higher gold price is not going to fix anything. america and the world need genuine future planning, not this reactionary mumbo-jumbo.
Here's your planning.
Everyone is in that same shape right now. Things look dire for all. So what to do? Everyone prints enough money to pay off the debt in every country and every currency.
Now everyone is out of debt......that was simple. I know everyone just got screwed but all were screwed equally.
Launch a new currency......I vote we call it the Worldo. What's the new Worldo currency worth? Whatever you can get out of it....in the end that's the way it always works.
You can print your way out of anything...but you can't print real money.
Had you been invited to the bankster meeting in the Arctic circle you might had heard something close to it. If you have a better plan......I would love to hear it.
:D
i was thinking less along the lines of 'money' - real (gold) or imagined (fiat). in my mind the actual solutions have more to do with literally revalueing 'value' toward the greater good and efficient utilisation of physical resources as opposed to finance. however, honest money may be a stepping stone in the near-term.
just me 2 cents.
How about more Wars? WW3?
We all know the type of people who meet at the Bilderberg dont give 2 figs about the sheeple. To argue about hyperinflation , gold and the collapse of the dollar , you have to be ready to discuss the full end game.
Instant Karma---Enjoyed the read. Well done.
Thank you. As a fully non-trained economist (never took a course in finance) I do a lot of listening, some reading, some thinking, and then post my understanding of things every now and again. I'm both thinking out loud and seeking feedback.
I'm wondering if countries like Japan and the US could engage in "mutual forgiveness" of debt, such that, we'll shred your bonds and you shred our bonds?
But that doesn't really work for the US, because of the enormity of our outstanding bonds and our twin deficits. Given that we appear to have passed the point of no return in terms of national debt and servicing the debt, the only prudent thing to do is to convert most of one's money into stuff. Money will clearly become less valuable relative to stuff as we print more money to pay interest on the debt and to pay for all the pensions and medical expenses and social security that we promised people.
Fewer and fewer people producing, more and more people consuming, the only "solution" is greater and greater deficits and more money printing. But you can't print stuff. So the stuff is going to get more expensive, especially since there are 6 billion other people in the world who like to buy stuff too, and their governernments aren't going to be outprinted by us for too long. Why should they suffer?
Honestly, I'd rather store oil, and corn, etc, in my backyard, but precious metals are more convenient, and, are a universal currency. I can take a gold or silver coin anywhere in the world, including the rainforests of the Amazon, and be solid.
I would like to premise my comments by saying that I completely agree with the story and most of the comments; however, being prudent I like to read more than one point of view to limit my bias and be as factual as possible. There are a couple of blogs on Modern Monetary Policy (MMT) that support unlimited spending / printing of money. The blogs - Billy Blog ( http://bilbo.economicoutlook.net/blog/ ), New Economic Perspectives ( http://neweconomicperspectives.blogspot.com/ ) and The Center of the Universe ( http://moslereconomics.com/ ) ...
I would honestly like someone on this blog, preferable Tyler, to look over these sites and offer a counter point. These are people who fly directly in the face of what everyone on this site says is an obvious problem, they counter and say we are basing our decisions on popular press and old economic theory that no longer apply.
Thanks - WSP
Dewd,
If you're the real YouTube guy, we collectively salute you with a deep, Samuri bow.
yes respect wall street pro
I have missed your vids please do more